Transportation costs are by far your largest logistics expense. And if your supply chain is global, it’s critical to your bottom line that you closely manage your international shipping cost for air and ocean freight. That means having a good understanding of how those costs are calculated. You won’t become an expert overnight, but this article will give you a basic understanding of pricing for global shipping so you can be a smarter buyer.
Getting fair and accurate pricing for air and ocean freight shipping starts with you.
Carriers and freight forwarders need certain data to provide a solid rate quote, and companies don’t always take the time to gather and check this data before asking for a quote. Check out the accompanying sidebar for the information you’ll need before seeking a quote.
Forwarders will not only want information on what you are shipping, but also the shipping terms. For instance, do you simply need port-to-port transportation? The cost for this service will obviously differ from the cost to provide door-to-door service.
The terms of sale between you and your buyer/supplier will also determine the scope of the shipping service and what will be included in your international shipping cost. If you are buying products from an overseas supplier and the Incoterm is ExWorks, then you are responsible to pay all transportation from the overseas factory to your door. If the Incoterm is CIF Long Beach for example, your costs and responsibilities start at the destination port. Our Incoterms Guide provides a handy reference on buyer/seller responsibilities in an international sale.
For air and ocean freight, unless you have a direct contract with a carrier or are moving lots of volume, you’ll usually get a better international rate from a forwarder that has multiple contracts with carriers based on certain volume agreements by lane.
Air Freight Shipping Cost Calculations
There are different tiers of air freight service based on how quickly you need to move the freight. With Consolidated Air – the most cost-effective and sustainable mode – you tap into a forwarder’s fixed consolidated flight schedule on certain lanes. Standard Service, the next best option for your budget, meets your service requirement and gets it there faster than non-air-freight options. If you need Expedited and Next Flight Out (NFO) Service, obviously that will cost you more.
An air freight quote may include origin charges to get cargo to the airport and destination charges for delivery to the consignee. But let’s dive into the actual air freight charges and how they are calculated to determine your international shipping cost. The main thing you need to understand is that airlines charge based on either the gross weight of the cargo or the volumetric weight – whichever is greater. Volumetric weight, also known as dimensional weight, is an estimated weight based on the length, width and height of a package.
Let’s dive a little further into the issue of volumetric weight.
There are space and weight limitations for cargo on an aircraft and carriers need to protect themselves from unprofitable cargo. For instance, a large shipment of cotton balls won’t weigh much but it will take up a lot of space, preventing the carrier from loading other goods in the cargo bay. Conversely, two pallets of steel bars will also limit the amount of other cargo that can be loaded, this time because of aircraft weight limits. So the cotton will get priced using volumetric weight, while the steel bars will be charged using the gross weight. Air cargo rate calculations are based per kilo. Airlines charge whichever is greater between the gross and the volumetric weight, and they refer to it as the “chargeable weight.”
Beyond the actual freight charge, your air freight shipments are subject to many additional fees, called accessorial charges, which may include:
- Fuel surcharges that reflect the cost carriers have associated with fuel – these surcharges change frequently in line with fuel prices
- Security surcharges that cover screenings at airports to comply with regulations
- Customs brokerage fees
- Terminal handling fees
- Dangerous goods fees for hazmat cargo
There are many more accessorials that may impact your international shipping cost depending on the airline and your shipment specifications.
Ocean Freight Shipping Cost Calculations
Calculating rates for ocean shipping tends to be a little more complicated than air freight because charges may differ based on the specific port, terminal, and country you ship to. Like air freight, you’ll have carrier charges to move the freight, as well as charges at origin and destination to move goods to and from the port.
The biggest factor impacting rates for ocean freight shipping services is deciding whether the goods require a dedicated full container (FCL) or if goods can be consolidated with other cargo is a less- than-containerload shipment (LCL).
For FCL, shipping lines charge a flat fee based on the type of container used. The three primary types are a 20-foot, a 40-foot and a 40-foot-high-cube container. Our guide to container specifications provides dimensions for each container type to help you determine how much of your freight will fit.
Calculating LCL rates gets a little more difficult because you are sharing the shipping cost with other shippers. LCL is priced based on Revenue Ton (R/T), and R/T is calculated based on weight or size, whichever is greater. The idea is similar to gross weight and volumetric weight in air freight. In LCL, when converting weight to R/T, often it is based on the factor of 1000KG = 1 R/T. For size, 1CBM = 1R/T. The conversion factor varies by lane, so you would want to keep this in mind.
This handy CBM calculator can help you calculate a consignment’s weight and volume.
Sea freight consolidators run consolidation programs to all major global ports. They book a certain volume of full containers with the carrier and then consolidate multiple shipments into the container at a warehouse near the port.
Small-volume shippers can save money by shipping LCL, even though the LCL rate per cubic meter is more than FCL due to the added consolidation-related handling. But because the FCL rate is cheaper, it could be worth using a full container even if your volume is well short of what a full container could hold. The tipping point for moving from LCL to a 20-foot container varies for different lanes, but a general starting point would be around 20CBM.
In addition to the carrier freight charges, expect to see some of these additional charges in your ocean shipping quote:
- Container freight station charges (for LCL only)
- Terminal handling charges
- Customs brokerage
- Pick-up and delivery charges
- Bunker charge (fuel surcharge)
- Currency adjustment factor (compensates for exchange rate risks when cargo is payable in a foreign currency)
International Shipping Cost: Comparing Quotes
Some companies have a requirement to get competing bids on air and ocean freight. In these cases, it’s important to ensure you are getting an “apples-to-apples” comparison.
Recently, we quoted a rate for a shipper who needed cross-continental air freight service in 3 days, door to door. The quote was produced for expedited service due to the tight delivery requirement. The bid was awarded to another forwarder that quoted a standard air freight service because it did not have the capability to ship expedited service. Clearly the time-definite service level requirement was not mandatory, but this was not clearly communicated.
The other reality of competing quotes for international shipping cost is that forwarders will format quotes differently. Some may provide an “all in” rate that includes fuel surcharges and other fees, while others will list out each separate charge. You’ll need to do the math to see how they compare since there is no uniform quoting format.
A couple of other things to remember.
Air and ocean freight rates will obviously differ by lane. It will cost more to ship from Shanghai to Los Angeles than the other way around, just because of the demand on the eastbound portion of that lane. Also, quotes have a shelf life. Don’t assume that the quote you got two weeks ago will still be valid today.
Minimizing International Shipping Cost While Keeping Things Simple
Whether it’s handling paperwork or the physical cargo, many people need to “touch” air and ocean freight during its journey – forwarders, truckers, customs brokers, port personnel, terminal operators, consolidators, customs agents, security workers. It’s a long list. Because none of these touches are free, they need to be accounted for in your international shipping cost.
A global freight forwarder like Dimerco can work with you to make sure pricing is accurate and that the process is fast and hassle-free. In addition, our international shipping specialists can recommend strategies to minimize your cost, while still meeting the service levels your business requires. Let’s start a discussion.